(Adds Barra comments, union statement, background)
BRASILIA, Aug 14 (Reuters) - General Motors Co will invest 6.5 billion reais ($2.8 billion) in Brazil over the next five years, Chief Executive Officer Mary Barra said on Thursday, reaffirming the automaker's long-term plans despite a sharp downturn in the local market.
Speaking to reporters in Brasilia after meeting President Dilma Rousseff, Barra said capital spending will be focused on new products and technologies, as well as plant maintenance.
"We recognize that there are challenges right now, (but) over the midterm and long term we see great prospects in the Brazilian market," Barra said.
Brazil's auto industry, which makes up one-fifth of the country's manufacturing output, has slashed production by 16 percent in the first seven months of the year and laid off thousands of workers as the economy stagnates.
Detroit-based GM and a metalworkers union outside of Sao Paulo are at loggerheads over plans to place some employees at a local factory on paid leave. The union has said the plans could threaten the jobs of 1,000 workers.
The union said later Thursday it will hold GM to the promise of increasing investment at Sao Jose dos Campos plant. At a press conference, Barra did not mention labor issues.
Barra said she thanked Rousseff for tax incentives for automakers and improved credit conditions in Brazil.
Despite tax breaks, automakers are reducing payrolls in one of the world's largest car markets as demand for new vehicles tumbles. Germany's Volkswagen AG put 900 workers in Brazil on paid leave in May and France's PSA Peugeot Citroen SA started a voluntary leave program for workers in Rio de Janeiro state that same month. ($1 = 2.2696 Brazilian reais) (Reporting by Carolina Marcello; Writing by Alonso Soto; Editing by Jeffrey Benkoe)